The Fair Work Ombudsman has launched an investigation into Uber and whether its contracts with tens of thousands of Australian drivers are in breach of federal workplace laws.

The employment watchdog undertook to probe the US-based company's contractual relationship with its large workforce of "driver-partners" earlier this month, after a request by a group of drivers who argue they have been "misclassified" by Uber as self-employed.
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Uber says it's "happy to assist" FWO in its investigation over claims of sham contracting. AP

The Fair Work Ombudsman is investigating Uber over claims it has engaged in sham contracting by classifying tens of thousands of drivers as independent contractors rather than as employees.

The investigation raises the prospect of a test case that could force the rideshare company to pay its drivers minimum wages and superannuation, resulting in a massive increase in labour costs.

The Ride Share Drivers United said it had made complaints to the workplace watchdog and was preparing to forward the details of more than 60 drivers for investigation over whether they should be classified as casual employees.

It has issued a call out to any drivers who have been with Uber for more than a year and drive an average of 35 hours or more a week to be part of the investigation.

A FWO spokesperson confirmed it has "commenced an investigation into Uber, with the purpose of determining whether the engagement of Uber drivers is compliant with Commonwealth workplace laws".

Uber drivers are classified as independent contractors who use the Uber application as a service to access customers and provide a 20 to 25 per cent commission per ride to Uber.

However, Uber asserts a level of control akin to an employer by setting the minimum fares, requiring drivers to accept rides on its terms and by de-activating drivers over low ratings and complaints.

The RSDU, which has more than 1,000 members, said it contacted the FWO in May and presented evidence of "rampant abuse" of Fair Work laws and alleged misclassification at a preliminary meeting with investigators in June.

"To be classified as real subcontractors, drivers must have more control and ability to grow their business, directly negotiate service prices with customers, ask for the destination before having to drive to the pick up location, be permitted to hail street rides, issue invoices and most importantly be able to scrutinize the Uber booking system and its various performance and earning metrics," the organisation said on its website.

An Uber spokesperson said "more than 60,000 Australian driver-partners choose to drive using the Uber app because they like to set their own schedule and be their own boss".

"We will be happy to assist the FWO with any questions they may have."

Test case needs good case study
Uber has recently been the subject of landmark cases in the United Kingdom and the United States in which the courts have found drivers should have been classified as employees.

University of Adelaide law professor Andrew Stewart has said that a recent UK Supreme Court ruling that "tore to shreds" Uber's argument its drivers were "partners" could potentially apply in Australia.

However, any court action would depend on a good case study and a driver willing to go through the likely long court process.

Last year, Maurice Blackburn flagged a potential class action against on-demand delivery service Deliveroo over claims of sham contracting.

However, progress is understood to have been hampered by a reluctance of workers to come forward and the lack of an example that best fits the case of an employee.

ATO review
Another drivers organisation, the Rideshare Drivers Association of Australia, told TheAustralian Financial Review it had recently met with the Australian Tax Office and had provided information to assist an ATO review of driver classification.

"The definition of a contractor needs to be questioned as the RSDAA believes that Uber drivers could possibly fall under the categorisation of casual employees," RSDAA NSW secretary Rosalina Kariotakis said.

"The contractor definition currently does not describe the working conditions of Uber drivers due to the high level of control Uber have with allocation of jobs."

A casual employee classification would require Uber to pay drivers at least $22.86 an hour, taking into account the latest increase in the minimum wage on July 1.

The RSDAA claims that driving for Uber is "unsustainable", arguing it costs an average 70 cents per kilometre to run a private vehicle but that in all cities outside of Sydney the average Uber rate per kilometre is currently $1.

The classification issue has taken on an urgency as all new and existing Uber drivers must be registered for GST from August 15 and will be required to have an ABN to access the app.

The RSDAA estimates that approximately 50 per cent of current drivers are not registered for GST.

And, just for fun, Forbes - nothing to do with the topic except - OMG - Uber may introduce tipping, how horrible for the customer experience and how bad for drivers exposing them to money - they were doing so well without it!